Inducing knowledge sharing in teams through cost-efficient compensation schemes

A natural challenge for firms seeking to implement knowledge management systems is accounting for the interplay of incentives among workers and supervisors. This paper studies this interaction, focusing on the dynamics arising from joint projects, task evaluation, and knowledge sharing, in the framework of a game‐theoretic model. We identify conditions under which a firm can minimize the costs of implementing an incentives‐based system for knowledge sharing, taking into account the firm’s ability to monitor individual performance. We show that an employer in our framework has a stronger incentive to monitor tasks when relative‐performance pay is small and when higher‐paid agents are more likely to generate new knowledge.